As noted above, the argument against central planning is even more general than the argument about prices. It also applies to government policy during a pandemic. Among the important factors that governments do not have nearly enough information about are people’s health, their resistance to disease, their attitudes to risk, or their financial circumstances to decide which industries, which jobs, or which sectors of the economy to shut down or limit. Health, for example, varies widely, as do people’s attitudes to risk. Governments cannot take all these factors into account when making overall plans for an economy. This is true whether the central planning is by federal governments, state governments, or local governments. Although Hayek argued that even if there were no problem of incentives under socialism it would not work, there are in fact major incentive problems under socialism, which Hayek never denied. And the massive incentive problems with central planning to deal with COVID-19 became apparent early on. This is from David R. Henderson, “The Abject Failure of Central Planning During COVID,” in Donald J. Boudreaux, COVID-19: Lessons We Should Have Learned,” Fraser Institute, 2022. It was published online earlier this month. Another excerpt: It’s this kind of experimentation that was not allowed in most states or in any provinces or territories. One might think that allowing such freedom would put at risk people who are afraid of the virus. It would. But they are free to isolate themselves. Which is better? Isolating everyone by force or the threat of force, or letting people choose whether to isolate or not? Moreover, when individuals and firms make decisions to deal with COVID, they can take account of local information. They also have better incentives: if their plans don’t work well, they bear a substantial portion of the cost. So, for example, if a hairdresser in California had been allowed to stay open (for the first many months they were not so allowed), she and her clients could learn from experience just how risky the transactions were. Many customers would be paying close attention and, especially with modern technological innovations like Yelp, many potential customers would have paid attention also. And finally: It never makes sense, in a world of millions of goods and services, to try to minimize one thing, in this case, COVID infections and deaths. Tradeoffs are huge and important. To analogize to the case of socialist central planning, it would be as if an economy’s central planners decided to maximize the amount of bread—and forget about eggs, other foods, home heating, transportation, clothing, and health care. Read the whole thing. The picture above is of Anthony Fauci. He wasn’t literally a central planner because he had little power. But for at least the first few months of COVID, most governors in the United States followed his and Deborah Birx’s advice, shutting down major parts of the economy and regulating other parts of the economy. (0 COMMENTS)

Inflation can be measured in a number of different ways. There is no “correct” measure of inflation, rather the utility of various inflation indices depends on the question being asked. Consider the following FT story: On both sides of the Atlantic, hawks insist “core” inflation (excluding food and energy) remains too high. But consumers face the overall not the core price level. The claim must be that falling headline inflation will not bring core inflation down, even though rising headline inflation is what pulled core inflation up. It is misleading to say that rising headline inflation is what pulled the core rate up, rather it was primarily excessive NGDP growth that pushed core inflation higher.  But I’m more interested in the other claim, that consumers face the overall inflation rate, not core inflation. It’s true that consumers are hurt more by high headline inflation than by high core inflation.  But that truth obscures another important fact.  Monetary policymakers can help consumers more by stabilizing core inflation than by stabilizing headline inflation. Did I just contradict myself?  Read the two claims carefully, and consider an example such as the case where headline inflation is much higher than core inflation due to soaring oil prices.  In that case, consumers will probably be worse off, as wages tend to track the (lower) core inflation rate.  But there’s nothing the Fed can do to prevent consumers from suffering from a fall in living standards due to a rise in the relative price of oil.  A high relative price of oil is a problem for consumers, but it is not a problem that can be fixed by monetary policymakers.  The overall macroeconomy will be more stable (and consumers will be better off), if the Fed stabilizes core inflation rather than headline inflation.   The same is true of wage inflation.  Obviously, the public prefers higher wages to lower wages, other things equal.  But when it comes to the effect of monetary policy on wages, other things are not equal.  A monetary policy that drives nominal wages higher will also lead to higher price inflation.  The FT article seems to miss this point: Wage “inflation” due to people getting more productive jobs in more productive companies is surely not harmful inflation. Higher productivity should itself be disinflationary for prices. Yet this possibility seems far from the minds and certainly from the words of central bankers. . . .  But from the gold standard era to today, they [central banks] have also been accused of something worse: of always taking capital’s side in a distributive battle against the working class. They should be wary of proving their critics right. Again, higher wages are better for workers, ceteris paribus.  But higher nominal wages generated by expansionary monetary policy will generally make the public worse off, at least in the long run.   Workers care about real wages. Productivity growth has been very slow since 2004, and there is no reason to assume that this trend will change in the near future.  Thus a monetary policy that leads to fast nominal wage growth will also generate high inflation.  When the central bank then tries to slow inflation with a contractionary monetary policy, there’s a danger the economy will fall into recession.  It is better to avoid the excessive stimulus in the first place, rather than try to clean up the mess without triggering a recession.  In order to achieve 2% inflation in the long run, wage growth must be held down to roughly 3%, on average.  The extra 1% represents productivity growth. (0 COMMENTS)

Stanford University’s information technology community produced, and then hid, a document entitled “Elimination of Harmful Language Initiative.” Stanford didn’t adopt the EOHLI document. The fact that Stanford has not directly rejected this document and the ideas expressed within it, however, strongly suggests that this widely ridiculed document aligns with some deep-seated views pervading the campus. As two people with ties to Stanford, we will explain, using techniques and principles that Stanford used to champion, why this document is so wrong. Some people criticize the document because they see it as a means of exerting control over others. That may well be true. But dismissing any proposal by speculating about people’s motives is not a legitimate way to argue. People can support bad ideas based on bad or good motives, and good ideas based on bad or good motives. If you object to the ideas, you need to say why, not attack assumed motives. By providing reasons for their conclusions, the document’s authors implicitly claim that they are logical. So it makes sense to analyze their arguments. And when we do so, we find that their reasoning is faulty.  The EOHLI document fails in the following ways: distinctions, costs/benefits, alternatives, and the big picture. These are the opening paragraphs of David R. Henderson and Charles L. Hooper, “Stanford Fails to Master Clear Thinking,” American Institute for Economic Research, December 26, 2022. Charley and I drew on some of the principles for making good decisions that we laid out in our book, Making Great Decisions in Business and Life, Chicago Park Press, 2007. An editor at another publication turned it down last week on the grounds that we were naive because we didn’t seem to understand the motives of those who push these bad ideas. That’s why we rewrote it to include the second paragraph above. Put yourself in the other person’s shoes. If you are attacked for your motives when you propose a policy and, moreover, when you’re attacked for those alleged motives by someone who doesn’t even know you, my guess is that it upsets you. It upsets me when it happens to me, one of the main reasons being that the person ascribing motives to me is almost always wrong. For example, I was recently attacked my someone on email who claimed that my criticism of the FDA in another article was based on my financial incentive. I replied that the small amount I was paid to write that piece was hardly much of an incentive to change my view. But even if it had been a large number, that large number could explain why I wrote the piece but not the content of the piece. Moreover, the alleged payer, Big Pharma, was not a payer. The payer was a think tank that was strapped for cash. Back to the article. Read the whole thing. It’s short. (0 COMMENTS)

In March 2009, with the British economy in freefall, the Bank of England under Chairman Mervyn King embarked on a program of Quantitative Easing (QE) where the Bank would ‘print’ money and use it to buy assets from financial institutions whose balance sheets had been ravaged by the collapse of mortgage-backed securities. The purchases were originally limited to British government bonds but were later expanded to include high quality commercial bonds. Some worried that this would cause inflation, even hyperinflation. Indeed, this money printing expanded the United Kingdom’s monetary base by 126 percent between March 2009 and February 2010 as the reserve balances component increased from 49 percent of the total to 76 percent. But inflation failed to materialize, at least on the scale of the gloomier forecasts. In the 129 months from March 2009 to December 2019 – the eve of the COVID-19 pandemic – Britain’s annual rate of Consumer Price Inflation broke 5 percent in just two of them. What happened? When financial institutions swapped their bonds for the Bank of England’s cash, they did not use the new cash as the basis for new lending. Instead, they ‘sterilized’ these inflows, in much the same way that inflows of gold were sometimes ‘sterilized’ under the gold standard. This is shown by the data for Retail M4, the British equivalent of M2, a broader measure of the money supply, changes in which are more closely tied to changes in inflation. While the monetary base expanded by 126 percent between March 2009 and February 2010, Retail M4 only expanded by 14 percent. To put it another way, in March 2009 each £1 of ‘narrow money’ – the monetary base – supported £18.45 of ‘broad money’ – M4: by February 2010 this had fallen to £10.01. The mass printing of money with no apparent inflationary consequences prompted some to think that we had found the philosopher’s stone of economics, the fabled ‘free lunch’. In Britain, the Labour Party proposed ‘People’s Quantitative Easing’ in 2015, arguing that if you could print money for the bankers you could print it for ‘the people’. In 2016, 35 economists wrote to the Guardian saying that: …the money [created by the Bank of England] could be used to fund either a tax cut or direct cash transfers to households, resulting in an immediate increase of household disposable incomes. More likely perhaps, the economists also proposed that: …a fiscal stimulus financed by central bank money creation could be used to fund essential investment in infrastructure projects—boosting the incomes of businesses and households, and increasing the public sector’s productive assets in the process.   Modern Monetary Theorists wrote of “the prevailing era of too-low inflation”, arguing that: …the macro policy implication should be obvious: We the people presently have far more fiscal space than the deficit scold, pay-for crowd preaches. In early 2020 COVID-19 hit and something very much like these policies was pursued. The British government borrowed huge sums, handing it to individuals and businesses shut down to stop the spread of the virus. To keep borrowing costs down, the Bank of England opened a direct line to the Treasury, monetizing British government debt. The financial system, which had sterilized much of the previous bouts of QE, would be bypassed. The monetary base expanded but at a slower rate than in 2009-2020, by 61 percent from March 2020 to February 2021 as opposed to 126 percent, but the expansion of Retail M4 was much the same, 16 percent compared to 14 percent. In March 2020, each £1 of ‘narrow money’ was supporting £4.73 of ‘broad money’: by February 2021, this had fallen to £3.21. This fall was smaller both absolutely and in percentage terms – -32 percent vs -49 percent – than the decline in 2010. This time the newly printed narrow money fed faster growth in broad money, and this drove inflation (Figure 3). The monetarist explanation of inflation fits this episode rather well. Figure 1: Retail M42 and CPI, % change from a year ago, M2 leading by 15 months Source: Bank of England and Office of National Statistics QEs are not created equal. Giving newly printed money to battered financial institutions was always likely to have different macroeconomic consequences to handing it to individuals and businesses to spend. MMTers, advocates of People’s QE, and others might argue that a pandemic was an inauspicious time to test their theories. On the contrary, there was rrely more “fiscal space” than when the economy was reopening and unemployment was 5.2 percent in late 2020. Britain’s current high levels of inflation are teaching the painful lesson that free money can be awfully expensive. There remains no such thing as a free lunch.   John Phelan is an Economist at Center of the American Experiment. (0 COMMENTS)

Chattel slavery involves the ownership by one person of another. This entry focusses on the operation of that labor system in the United States. Although chattel slavery dates back to the dawn of civilization, in the area that became the United States it first emerged after the importation of Africans to the Virginia colony in 1716. Prior to the American Revolution, all British colonies in the New World legally or informally sanctioned the practice. Nearly every colony counted enslaved Africans among its population. Only during and after the Revolution did the northern states abolish the institution or begin to implement gradual emancipation. But slavery was more economically entrenched in the southern states and became more so over time. By the outbreak of the Civil War in 1861, slaves constituted one-third of the total slave-state population of 12.3 million. Slavery has captured the attention of economists since at least the eighteenth century. Two basic questions have remained intertwined throughout the history of economic thought regarding this ancient institution. First, was slavery profitable? And second, was slavery efficient? Was it profitable to individual slaveholders, in the sense of offering a reasonable prospect of monetary return (or some other material reward) comparable to what they could earn from other enterprises? Efficiency refers to overall economic gains. Did the exploitation of slave labor allocate and use resources in ways that fostered aggregate wealth and welfare, regardless of how unfairly it distributed wealth? Did it produce goods and services as abundant and valuable as alternative labor arrangements could have? Often economists and historians have reached identical answers to both questions, concluding that either slavery was both unprofitable and inefficient or both profitable and efficient. These are the opening paragraphs of Jeffrey Rogers Hummel, “U.S. Slavery and Economic Thought,” in David R. Henderson, ed. The Concise Encyclopedia of Economics. It’s the latest addition to the on-line encyclopedia. It’s very long but well worth reading. Another excerpt: Strictly speaking, economists usually and most broadly employ the term “efficiency” as a measure of welfare rather than of output. Thus, while economic historians now agree that antebellum slavery marginally increased the output of cotton and other products, it still could have diminished total welfare. In measuring efficiency, economists have no precise unit to compare the subjective gains and losses from involuntary transfers. But because most coercive transfers in the Old South were from poor slaves to rich slaveholders, to assume unrealistically that such transfers were a wash in which slaveholder gains equaled slave losses is to bias the analysis in favor of slavery. Thus, if welfare losses still exceed gains, even with this bias present, one can be certain that slavery was inefficient. Hummel, in his dissertation, “Deadweight Loss and the American Civil War” (2001, updated 2012), integrated previous work into a systematic challenge to slavery’s efficiency.[9] He identified three sources of deadweight loss: output inefficiency, classical inefficiency, and enforcement inefficiency. And an excerpt on the New History of Capitalism: By the twenty-first century the slavery debates among economists had become quiescent. One major subsequent contribution is Olmstead and Rhode’s “Biological Innovation and Productivity Growth in the Antebellum Cotton Economy” (2008). They found that average daily cotton-picking rates quadrupled between 1801 and 1862, mainly due to new cotton varieties. But among historians, those describing their own work as part of a “New History of Capitalism” now claim that slavery was the primary source of overall U.S. economic growth in the antebellum period. Two of their major works are Beckert’s Empire of Cotton (2014) and Baptist’s The Half Has Never Been Told(2014). [15] While embracing the finding that slavery was productive, these historians otherwise largely ignore all previous work of economists. Yet the idea that slavery was essential for cotton production, which drove national growth, is belied by the fact that just five years after the Civil War’s end the physical amount of cotton produced was approaching its prewar peak, mainly because of increased acreage devoted to cotton cultivation, despite the fall in southern real income. Baptist went so far as to ignore Olmstead and Rhode’s explanation for the increase in cotton-picking rates, attributing it instead to a whipping regime of calibrated torture, steadily increasing over sixty years. Horrendous as torture is, the claim that it could account for productivity continually increasing for more than half a century is implausible on its face. Ignorance of national income accounting and Baptist’s double counting led him to attribute almost half of U.S. economic activity in 1836 to cotton production. Although cotton was the largest U.S. export, it never exceeded 5 percent of GDP. Olmstead and Rhode (2018) offers a comprehensive and scathing critique of the New History of Capitalism’s works on slavery.[16]         (0 COMMENTS)

Economic historian Judge Glock talks to EconTalk host Russ Roberts about zoning and the housing market. Glock argues the impact on zoning on housing affordability is small and that we should learn to love property taxes as long as they’re administered properly. The conversation includes a discussion of the environmental impact of urban sprawl–Glock argues sprawl […] The post Judge Glock on Zoning and Local Government appeared first on Econlib.

With the First Click of Christmas, My True Love Gave to Me a link to an XKCD.   With the Second Click of Christmas, My True Love Gave to Me Two Gigs of spam And a link to an XKCD.   With the Third Click of Christmas, My True Love Gave to Me Three Thumbs Up Two Gigs of spam And a link to an XKCD.   With the Fourth Click of Christmas, My True Love Gave to Me Four Banking Scams Three Thumbs Up Two Gigs of spam And a link to an XKCD.   With the Fifth Click of Christmas, My True Love Gave to Me Five Stupid Memes! Four Banking Scams Three Thumbs Up Two Gigs of spam And a link to an XKCD.   With the Sixth Click of Christmas, My True Love Gave to Me Six Honey Badgers Five Stupid Memes! Four Banking Scams Three Thumbs Up Two Gigs of spam And a link to an XKCD.   With the Seventh Day of Christmas, My True Love Gave to Me Seven misspelled comments Six Honey Badgers Five Stupid Memes! Four Banking Scams Three Thumbs Up Two Gigs of spam And a link to an XKCD.   With the Eighth Click of Christmas, My True Love Game to Me Eight Requests for Re-Tweets Seven misspelled comments Six Honey Badgers Five Stupid Memes! Four Banking Scams Three Thumbs Up Two Gigs of spam And a link to an XKCD.   With the Ninth Click of Christmas, My True Love Game to Me Nine Ladies Dancing (SFW!) Eight Requests for Re-Tweets Seven misspelled comments Six Honey Badgers Five Stupid Memes! Four Banking Scams Three Thumbs Up Two Gigs of spam And a link to an XKCD.   With the Tenth Click of Christmas, My True Love Game to Me Ten Email Forwards Nine Ladies Dancing (SFW!) Eight Requests for Re-Tweets Seven misspelled comments Six Honey Badgers Five Stupid Memes! Four Banking Scams Three Thumbs Up Two Gigs of spam And a link to an XKCD.   With the Eleventh Click of Christmas, My True Love Game to Me Eleven Facebook Flame Wars Ten Email Forwards Nine Ladies Dancing (SFW!) Eight Requests for Re-Tweets Seven misspelled comments Six Honey Badgers Five Stupid Memes! Four Banking Scams Three Thumbs Up Two Gigs of spam And a link to an XKCD.   With the Twelfth Click of Christmas, My True Love Game to Me Twelve Hours of Surfing Eleven Facebook Flame Wars Ten Email Forwards Nine Ladies Dancing (SFW!) Eight Requests for Re-Tweets Seven misspelled comments Six Honey Badgers Five Stupid Memes! Four Banking Scams Three Thumbs Up Two Gigs of spam And a link to an XKCD. (0 COMMENTS)

Years ago, I lived in a rather Podunk town in North Carolina. It had its charms, but one of my biggest gripes was that it took over an hour to drive to a decent bookstore. It was around this time I started ordering books online more often. But there was a problem. The area where I lived had no shortage of people willing to snatch unattended boxes away from people’s doorsteps. I had more than a few books swiped before I thought of a solution, with a little help from Gary Becker. Like many Chicago school economists, Becker was keen to use economic modeling to analyze all kinds of behaviors. Among these are his economic analysis of the family and of discrimination, but he also worked out an economic analysis of criminal behavior. In short, he modeled crime as a form of rational economic behavior. People will engage in crime when the expected benefits outweigh the expected costs. The expected cost was taken to be a combination of two factors – the likelihood of being caught, and the severity of punishment. The prospect of severe punishment could still lead to a low overall expected cost if one was near-certain they wouldn’t be caught. Similarly, a high likelihood of being caught might not provide much deterrence if the prospective punishment was trivial. Unfortunately, I wasn’t well situated to alter either of these variables. There wasn’t much I could do to increase the likelihood of them being caught. The occasional book being swiped from someone’s doorstop was not a major issue, in the eyes of the local cops, so it’s not as though I could convince them to stake my place out whenever I was expecting a delivery. And even if someone was caught swiping a package from a doorstep, they would likely only face a legal slap on the wrist. So, considering this, how did Becker’s work help me come up with an idea? I realized that even though I couldn’t do anything to increase the “expected cost” side of the ledger, I could do something to lower the “expected benefit” side. I just started ordering my books from Barnes and Noble instead of Amazon. This was my reasoning. When Barnes and Noble shipped a book, the box it came in was prominently marked as from that store. Similarly, when Amazon shipped a book, it was sent in a distinctive Amazon package. But I went on a limb and assumed that the type of person who is willing to steal boxes from doorsteps is not likely to be the sort of person who is interested in books or reading. If they saw a box on my door that was clearly from Amazon, aka “the everything store”, that box could contain, well, just about anything. So it might seem worth swiping, just in case. But if they saw a box that was clearly from Barnes and Noble, which would almost certainly contain a book, I figured they wouldn’t bother to grab it. Even with a low expected cost of stealing, the benefit of gaining a book would be, to them, even lower. And it worked! After I made that change, I never had another book taken from my doorstep again. There were times I ordered things other than books from Amazon, and occasionally those boxes would disappear. But my books were always left behind. I would that Becker earned his Nobel Prize for that alone – but to date Stockholm hasn’t returned my emails suggesting they amend his information and add this to his list of accomplishments. (0 COMMENTS)

The following NPR story caught my eye: A 78-year-old woman is taking Bullhead City, Ariz., to court over her arrest earlier this year for feeding the homeless community at a local public park.The Institute for Justice wants a federal court to effectively end the city ordinance that prohibits Norma Thornton from giving food to the hungry in a public park. Why would there be a law against feeding the homeless in a public park?  Shouldn’t that sort of activity be praised?  You might wonder if the government is worried that the shared food might be unsanitary.  In fact, there is no regulation against sharing food in a public park; the rule forbids sharing food for charitable purposes.  It’s the charitable intent that is the crime, not the food sharing:  In March, Thornton was stopped by police and arrested, charged with violating a local ordinance that makes it illegal to share prepared food in a public park “for charitable purposes” without a permit. Young men at a fraternity party can share all the food they like among their members, without any fear of arrest. I suspect that the real concern here is not food safety; rather city officials simply don’t want poor people in the public park.  And I also suspect that anti-poor bias motivates much of our public policy: 1.  It is now widely accepted that residential zoning restrictions are not motivated by the need to prevent polluting factories from locating near to residential areas.  Rather the intend is and has always been to prevent low-income people from moving into middle class neighborhoods. 2.  It is perfectly legal for a wealthy man to give expensive gifts to his mistress, but a prostitute and a blue color worker would be arrested for doing essentially the same thing in a less sophisticated fashion.  The public policy goal doesn’t seem at all related to the concept of sex for money; rather it’s about keeping “low class” women out of “respectable” neighborhoods.   3. A Hollywood star with a drug problem is sent to “rehab”.  A low-income teenager selling pot is sent to prison. Anti-poor bias seems to cross party lines.  You find it among conservative politicians who claim to favor “liberty” and among progressive homeowners with BLM signs in their front yard.  It is one thing that the elites in both parties actually agree on. Merry Christmas!     (0 COMMENTS)

In a market, some trades will end up producing some “waste.” As in all other areas of life, when individuals look back at their decisions in the market, they often find that they have made some mistakes. One important question is – what incentive do they have to try to avoid such mistakes in the future? In a free market, if I make a bad trade (I have buyer’s remorse after the fact), I bear the costs of this “bad” decision. I have given up something else I could have done rather than make the trade; the cost is borne by myself. The “loss” I incur has a function here: it incentivizes me to avoid making such bad trades in the future. I incorporate my losses into my future decision making. The same holds true in production. In a market economy, we don’t know beforehand what the economy will produce. If we did, allowing producers to compete with each other would be pointless. Through the interaction of (a) sellers producing what they believe consumers will want and (b) consumers determining what they value in the market, the state of the economy is continuously reproduced through time. Given the inherent uncertainty of our world, producers will often be mistaken in their evaluation of what consumers’ wants and needs will be. The result of such mistakes is leftover product on which they must take a loss. If the firm does not incorporate such losses into future decision making, it may continue to make losses, eventually reaching an untenable financial situation. In other words, if producers are forced to bear the costs of their own mistaken choices, such losses have a purpose in a market economy. They tell the firm that what it is producing is not of sufficient value to undergo the costs of its production. Thus, “waste” from mistaken production decisions is part of a critical feedback loop in market economies. If producers were protected from bearing the costs of such waste, we would expect more of it to occur. In making this point, I am reminded of a scene from the TV show The Office. Michael Scott, upon being abandoned in downtown Scranton, PA without his wallet, stops by a hotdog stand to bargain for something to eat. The manager of the stand will not allow Scott to buy now, pay later or to offer his watch for a hot dog in lieu of cash. Exasperated, Scott asks “What do you do with the hot dogs you don’t sell at the end of the day?” To which the Manager replies, “We throw them away.” Scott retorts, “why don’t you just throw one of them away right now, in my mouth?” Eventually, Scott leaves the stand empty-handed. A viewer can sympathize with his plea. If some of the hot dogs are going to be thrown away, why not just give one to Scott now? Throwing away hot dogs at the end of the day is wasteful. However, as discussed before, the hot dog maker must bear the cost of any hot dogs he throws away at the end of the day. Therefore, he doesn’t give a hotdog to Scott because he hopes that there are no hotdogs leftover at the end of the day. If there are, it means that he has made an incorrect guess as to how many people in downtown Scranton would want to buy hotdogs that day (at the prices he was willing to sell them at). If he had made a better guess, he could have lowered his costs by preparing only the number of hotdogs that were demanded. The point is that the hotdog maker has an incentive to avoid losses – to avoid wasting hotdogs at the end of the day. Like other producers, he will not always be successful in doing so because he is a fallible human agent making decisions in a world of uncertainty. Nonetheless, the market economy has a built-in enforcement mechanism – losses – that help to minimize the amount of waste that occurs. Another note is that when the hotdog maker does have waste at the end of the day, it is also a waste to society because he competed resources away from other, potentially more efficient, uses. Crucially though, he bears the cost personally as well in the form of costs he could have saved/profits he could have made. Without the punishment inflicted by that loss, there would be no incentive to stop wasting resources, which would continue to hurt society, but not the hotdog maker himself. There will always be some waste in production, as the market is a reflection of the imperfect human decision makers that create it and the uncertainty of the world in which we live. We should keep this in mind when reading reports about the waste generated by capitalism. When waste occurs, we should be on guard for any way that firms are being protected from the losses that wasteful decisions are generating. If losses are socialized, we can expect a lot more of them. Unsocialized losses present opportunities for entrepreneurs who can use resources more efficiently. We should also look out for any rules or regulations – like confusing labeling requirements (mostly at the state-level in the U.S.) – that might unnecessarily increase food waste by sending distorted signals to consumers.   Giorgio Castiglia is the Program Manager for the Project on Competition at the Mercatus Center, and a PhD student in economics at George Mason University. (0 COMMENTS)